Featured Article

Fraudulent facets

Shining a light through diamond fraud

May/June 2018

ByDonn LeVie Jr., CFE

Diamond fraudsters dupe consumers of all types, including savvy investors and collectors. The global diamond trade, like many other collectable markets, is at the mercy of the absence of transparency. Buyers must cautiously scrutinize gemstones and other low-utility/high-value objects. Here are practical ways for fraud examiners to avoid rip-offs.

Thanks to a brilliant 1940s marketing campaign by diamond conglomerate De Beers, buying a diamond engagement ring has become the symbol of love betrothed. Maybe you know something about the “4 Cs” of diamond shopping (clarity, cut, color and carat) so you can carry on a conversation with sales people at the jewelry counter. Maybe you saw the Leonardo DiCaprio movie, “Blood Diamond,” and you want to purchase a “conflict-free” stone. But what if you’re asked about shape and symmetry? Do you know about inclusion density and brilliance grades and how carat weight affects these parameters?

As your eyes glaze over, you realize you’re in over your head when it comes to such a large investment. There’s a lot to consider when buying diamonds (a
$73 billion-a-year industry, according to the World Diamond Council) — not to mention how easy it is to be duped into purchasing an inferior stone, or a “cultured” (or lab-grown) diamond or worse: glass (especially if you shop for diamonds online from sketchy diamond houses). You worry about investing that “two months’ salary,” as the ads suggest, into something you just don’t know enough about.

And fraudsters in the global diamond trade want to keep it that way. It’s not just gemstone-quality diamonds that are subject to fraud. In 2004, De Beers was charged with colluding with General Electric to fix the price of industrial diamonds, which are used in a variety of applications. In the settlement, De Beers pleaded guilty and paid a $10 million fine to the U.S. Department of Justice. General Electric was acquitted of all charges. (See
De Beers Agrees to Guilty Plea To Re-enter the U.S. Market, by Stephen Lebaton, The New York Times, July 10, 2004.)

Related Articles

Lessons from 1MDB

Members of the board of 1MDB — a Malaysian federal strategic investment fund — and top Malaysian government officials plus private citizens allegedly illegally syphoned and laundered billions from the fund. Here’s how they escaped controls and lined their pockets.

Dual citizenship, single focus

Lisa Osofsky views her dual citizenship as an advantage at the SFO. She’s worked in the anti-fraud private and public sectors, and in the U.S. and U.K. judicial and prosecutorial systems. She intends to use proactive techniques, global cooperation and the latest financial tools to make the U.K. an inhospitable environment for fraudsters.

Using data analytics to find fraud under those shells

Fraudsters increasingly are using shell companies to commit everything from asset misappropriation and money laundering to bribery and corruption schemes. Audit committees want fraud examiners to make sure their organizations aren’t victims.
Here’s how to use fraud data analytics to sniff out illegal shells.